What Price Low Cost?

For years, Walmart has succeeded and enjoyed tremendous growth due to its relentless pursuit of low costs. However, the retail giant has been facing one public relation issue after another recently. As the notoriety of "Everyday Low Prices" spreads, Walmart sees itself spending an ever-increasing amount of resources on managing its image. But sometimes, real public relation management involves fundamental changes in a company's strategic implementation. Without clear changes in its policies, Walmart will see a continuation of fierce community push-backs -- and the inability to reach lucrative markets that it wants to capture. Does it care about the billions that they can make from New York, Chicago, and similar cities? You bet it does!

Is More Better? (Link)

This is a funny clip on YouTube about Bush's Middle East policies, but it also says something about nonsensical diversification and over-engineering products. Enjoy!

Note: It's not about Apple or its i-products.

No Man is an Island, and Neither is Any Firm

All firms compete and survive in an institutional environment. This institutional environment contains rule, regulations, and norms. By adhering these rules, regulations, and norms, firms gain legitimacy and assure their stakeholders. Sometimes these institutional forces are quite enduring, especially if they emerge within an industry. And that is the case for the film industry. The established studios are relying heavily on these institutional forces to hang onto their grasp as the center of the industry.

Institutional environment can also come in the form of supporting infrastructure. The development of an industry center does not occur just because of the existence of talents, or just because of the abundance of other resources. The fact that viable innovations often miss the chance to be commercialized in former Soviet Union and now Russia is a case in point. The long-term viability of an industry center depends on the development of an infrastructure that bring together resources and nurture regeneration of resources. The existence of research universities, supportive policies and regulations, and efficient interorganizational networks are examples of such infrastructure. Without infrastructure, the development of an industry structure is not sustainable.

In the Evolution Process, Revolution is Sometimes Necessary (Link)

Organizational ecologists believe that when firms are founded, they are inspired by events in the competitive environment and are founded to capture opportunities that arise in that environment. Over time, however, the environment shifts. All else being equal, for various reasons (e.g., structure, politics, managerial limitations, etc.), firms will become less competitive than new firms. Environmental changes are particularly damning if they are competency destroying, i.e., changes that would amount to what Austrian economist, Joseph Schumpeter called creative destruction, a process in which new fundamental business models and key players in an industry emerge.

In the advent of the Internet age, the pulp and paper industry is undergoing an evolutionary process much like the creative destruction. Yet many existing firms are trying to fine-tune what they have been doing best -- under the old regime. As a result, the remaining players that are strong enough to weather the initial shock are fighting for a rapidly shrinking pie. Exceptional periods call for exceptional moves. But exceptional moves are the toughest when firms are established, with established managers and established routines that have been successful in history. Historically, few firms have managed to break free from their once successful model and explore new ones. Revolution at the firm level is, oftentimes, harder and slower than evolution at the macro level.

A few interesting references on related topics:

Evolution -- Aldrich, H. 1999. Organizations Evolving. Thousand Oaks, CA: Sage.
Organizational ecology -- Carroll, G. R., & Hannan, M. T. 2000. The Demography of Corporations and Industries. Princeton, NJ: Princeton University Press.
Creative destruction -- Schumpeter, J. A. 1942. Capitalism, Socialism, and Democracy. New York, New York: Harper Torchbooks.
Exploitation and exploration -- March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2, 71-87.

Deja Vu? (Link)

Sears did it and got distracted; GM did it and got into trouble; and now Walmart almost did it.

No doubt Walmart sees opportunities for synergy and growth by extending into the banking industry. However, just how sound is this move? How attractive is the industry to Walmart? Does Walmart have the necessary resources and capabilities to compete in this market? Can Walmart really outdo existing banks in their home industry? Are there better alternatives? If it, indeed, makes sense for Walmart to get into banking, how does the banking division fit with the rest of the firm? How can Walmart avoid making the same mistakes that Sears and GM did?

Clearly, regulatory environment aside, there are many more questions that Walmart has to address before executing this diversifcation scheme.

Hi-Tech Giants Getting into Transportation? (Link)

Yes and no. Hi-tech giants, such as Google and Yahoo, have been shuttling their employees to and from work. These firms realize that given the wealth and income of many of their employees, monetary returns are less effective than factors that would increase quality of life, such as day-care centers and commuting convenience. A little bit of understanding can go a long way in attracting talents for long-term competitiveness -- all for a price that can well be far lower than stock options and bonuses. Really, more does not necessarily mean better!

In fact, Google's case is a clear example of coherently orchestrated analysis, formulation, and implementation of its strategy. A key source of its competitive advantage comes from the creativity of its people. These people allows them to effectively differentiate from its competitors. To sustain its competitive advantage over its rivals, Google must do better in terms of retaining and attracting talents, and nurturing the creativity and productivity. Both its culture and its various popular employee benefits are signs that the firm is executing effectively its intended strategy -- culture and reward systems are both levers of strategic implementation.

Note, however, that this form of differentiation can be very costly. Many firms are generous during good times. It is when hard times hit that they start to cut back on perks -- and even salaries. For the current and potential rivals, these would be the times when poaching talents become relatively easy. In other words, all may looks great during good times, but hard times present a real test of the stability and soundness of a firm's strategy.

Happily Ever After? (Link)

Citigroup has taken over, Nikko Cordial, one of the biggest brokerage houses in Japan. Both sides seem to be happy about what they get from the deal. Now that the agreement is signed, the tough part begins. How should Citigroup go about integrating Nikko Cordial? What sort of integrating approach is suitable given the nature of the industry and Japanese firms? Will frustration brew after a honeymoon period, when both sides encounter cultural differences head on?

Deals in Context ... (Link)

France is selling the Louvre name to Abu Dhabi for a US$1.3 billion package. Beside the aforementioned financial incentives, this deal probably got through due to other lucrative deals between the French government and United Arab Emirates, as suggested in the article. Once again, we see that contracts are embedded in a nexus of contracts. Examining them one by one would be over-estimating the amount of choices an organization, however powerful it is, has.

Healthy Soda? (Link)

That's right. Pressed by an external environment that is not favorable to their signature products, Coca Cola and PepsiCo are both pushing out cola with nutrition boosters. Coca Cola is particularly hard-pressed, as PepsiCo is much more diversified. But still, in such a competitive market, the two companies are making matching moves.

The issue here is, carbonated syrup is carbonated syrup is carbonated syrup. It is not natural products. It is a healthier choice than the regular cola, but is it really healthier than juice and water? Is taking nutrients in via cola healthier than absorbing nutrients through normal meals? Herein lies the tricky line between selling the new cola as a healthier alternative to most sodas and pushing the new cola as a health drink. How far would these companies go in saving their struggling products?

Revolutionizing TV? (Link)

The folks who brought the public Kazaa and Skype have the resources and capabilities to exploit existing business opportunities and copy the wildly successful YouTube, but have appeared to make a smart move by exploring more ambitious ones. They are planning to bring DVD quality TV programs to computer screens -- without the streaming stutters. The interesting thing is, many elements of the business model are not new. In fact, ideas that revolutionize people's lives are usually a combination of old ideas in a way that no one has thought of.

Just imagine what this would mean to the TV, cable, and advertisement industries; how it would change the way firms compete ...

Turbulence Ahead for Airbus (Link)

This article highlights how maintaining close relationships with the government can be both a blessing and a burden. While Airbus has gained a lot of resources due to its close ties to the European governments, their decisions are also greatly constrained by European labor rules and politics. Therefore, in considering a firm's decision options, one must keep in mind its current set of contracts, agreements, and relationships. Decisions do not exist independently. Strategic moves are usually intertwined. Therefore, analyzing a firm's decisions independently is underinstitutionalizing these decisions -- we may overestimate its choices.

If you are interested in the issue of embeddedness, this is one great article to read:

Granovetter, Mark. 1985. Economic action and social structure: The problem of embeddedness, American Journal of Sociology, 91(3): 481-510.

General Motors, Mortgage, and the Latest Stock Market Slump (Link)

Oftentimes, diversification is used by firms to reduce risks. However, there is a point at which firms actually get themselves exposed to even more risks by diversification. And given the inter-linkages among organizations and markets, this volatility can be contagious and a market slump can affect even organizations and markets that, in and of themselves, are not risky.

Welcome!

After contemplating for months, I finally succumbed to the temptation and started a blog! This blog will specifically track news that are related to organization and management related issues around the world. Enjoy!